21 Feb

Why Protectionism Alone Won’t Necessarily Put the US Aluminum Industry in Order

WRITTEN BY Mark O'Hara FEATURED IN Company News, Insights, & Analysis

US aluminum industry

As we noted in the preceding part of this series, the US Commerce Department has released its findings in the Section 232 probes that separately covered steel and aluminum imports. The Commerce Department has recommended three options to curb aluminum imports.

Why Protectionism Alone Won’t Necessarily Put the US Aluminum Industry in Order

Under the first option, the Commerce Department has proposed a flat tariff of 7.7% on all aluminum imports. Below, we’ll discuss how this tariff, if implemented, would impact US aluminum production (AWC) (S32).

US aluminum production

To be sure, US aluminum production has been in a downward trend for quite some time now. Alcoa (AA) was the world’s second-largest aluminum producer in 2007, but in 2015, the company was ranked fourth.

Last year, Secretary of Commerce Wilbur Ross defended the Section 232 imports investigation, stating that the US now only has two active smelters, while 55% of US aluminum demand is met with imports. There certainly is merit in his argument, but are aluminum imports solely to blame for falling US aluminum production?

Aluminum prices

Let’s look at some facts. LME (London Metals Exchange) aluminum prices have bounced back from under $1,500 per metric ton in 1Q16 to above $2,200 per metric ton last year. Now, that’s a nearly 50% rise in aluminum prices from their 1Q16 lows, which is far higher than a tariff of 7.7% that the Commerce Department is recommending.

However, despite the sharp surge in aluminum prices, we haven’t seen a major spike in US aluminum production (CENX) (RIO). Continue to the next part of this series for a look at why US aluminum production has been stagnant—despite the surge in aluminum prices.

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